Market Your New Crop Around Price Targets
By now, you know your 2018 input costs, and have price targets for your corn and soybeans. But can you realistically capture them in these markets? Yes, say two guests on Episode 3 of In the Driver’s Seat, our grain marketing podcast. ADM reps Danny Pfoff and Justin Newman share how they’ve helped farmers capitalize on seasonal trends and brief market upticks.
Pfoff is an ADM Grain Originator in Central Illinois, and Newman is the ADM Integration Manager in Southern Illinois, Indiana, and Ohio. Here are highlights of the conversation. You can listen to the full episode below.
Is the grain market today capable of reaching my price targets?
Pfoff: Year in and year out, we get opportunities, but there is a seasonality to it. Generally, for corn, February through the end of June is a good time to be marketing new crop corn. You can set up contracts to get bushels priced during that seasonally higher opportunity. You can even say, “I want to market 15% of my crop during June,” and customize a contract called Price Daily to make it happen. That way, when we have a rally, you don’t have a deer-in-the-headlights look. You’re executing every day.
Newman: I agree. For a lot of folks, soybeans have been at a profitable level lately—not for all, but some. But they’ve been short-lived windows, and often during times when we don’t even have the crop in yet. So, it’s key to have crop insurance, and not be scared to take those opportunities.
What are the main types of contracts that can help capture my targets?
Newman: Most folks are familiar with Traditional contracts, such as a Cash or a Basis contract. They simply give you a fixed price for later delivery. Automatic contracts like Average Seasonal Price work if you want to be involved in the market, but not make decisions every day. You can watch as your grain is automatically priced over a period of typically higher months. Active contracts, such as Hedge-to-Arrive, are for producers who want to be more hands-on in the market, making their own decisions. Finally, in Expert contracts, an ADM professional or other grain marketing expert makes futures pricing decisions on your contract.*
Pfoff: Once you get familiar with these tools, you can create a nice mutual-fund type portfolio, with 10% of your bushels in this, 10% in that—all working toward the same goal of profitability .
“With a floor in place, I know the worst that can happen, but I still have upside. That’s real risk management against my grain.”
– Justin Newman
Which contracts protect a floor, but still give me some upside potential?
Pfoff: That would usually be an Active contract. But a Traditional contract can easily become an Active contract. On a cash sale of corn, you can attach a minimum price strategy and participate in unlimited upside at a later time.
Newman: There are ways to add a floor or ceiling on an Automatic contract, too. With a floor in place, I know the worst that can happen, but I still have upside. That’s real risk management against my grain.
How about offers? Any principles on using that pricing tool?
Pfoff: I like to promote having offers in, hopefully above your break-even. The market can be active in overnight trading when we’re asleep. Many times, I’ve seen that target hit overnight and the customer’s completely surprised. And generally, if that offer makes you money, don’t pull it unless something is really changing on your farm.
Newman: Make sure those offers are realistic—that it’s not $2 out of the money. There’s also an old adage, “Don’t put offers in on even numbers.” With a $4.00 offer, it may be hard to hit that, but a lot of times, we hit $3.99. I’ve seen that penny cost people several cents a bushel.
How many bushels should I commit to any one sale?
Pfoff: Yields in the U.S. have really increased over the last 20 years, but our marketing transactions don’t reflect that. I’ll get a very large producer calling to lock in just 1,000 bushels. If there’s a good opportunity, consider maybe 10% of your crop—then back into the math on bushels.
Newman: Definitely, sell in percentages and get your mindset away from bushels. A contract of 1,000 bushels is not going to be impactful to a 200,000-bushel crop. Look at risk-reward and ask what a transaction means to your operation. Make sure a sale is impactful to your bottom line.
Farmers commonly use storage as a marketing tool. When is that a good idea?
Newman: Storage is a great tool and it will continue to make farmers money [with carry], especially in years when we have big crops. The thing to recognize, though, is you still need to market the grain that goes in the bin.
Pfoff: There’s opportunity in storage, but you have to protect it. You have to lock in the higher deferred price on those bushels. Another quote is, “It’s only a carry if you sell it and lock that in.” If you just wait to sell, you’re just in the nearby market.
How do I stick to my target when I see the market fluctuating?
Newman: It all leads back to the budget you made in January. Just like you do with a New Year’s resolution, you need to write down your target and look at it every day. If you’ve got a price in mind, whether it’s an offer that triggers, or a contract that automatically prices—or if you’re just watching the market—write it down and execute on that.
What if I end up selling too low?
Newman: If you execute on your targets, don’t get hung up thinking you should have held out for a higher price. If you’re going to continue to farm from now on until you retire, you’re always going to be “long the market”—in other words, have more crops to sell. Just know you had a valid target, we got there, and you took advantage of it.
“There’s opportunity in storage, but you have to protect it. You have to lock in the higher deferred price on those bushels.”
– Danny Pfoff
How can I be more comfortable if I’m new to forward marketing?
Newman: You don’t necessarily need to put yourself out in the futures market. You can use cash contracts. Also, I’d encourage folks to not give up on a contract. There won’t be homeruns every year. Forward contracts tend to work over time, just like a mutual fund.
Pfoff: Futures and options can sound kind of risky, but the reality is, you have the risk anyway, whether you’re putting a futures position on or doing nothing. It’s a matter of leaning on someone you trust to walk you through the available tools. That’s our role with ADM—to be educators.
* Subject to Terms and Conditions in ADM-provided contract. Please see contract for details.
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